On Feb 6, 2011, at 9:53 PM, SA wrote:
> Yes, but the part I don't buy is the connection between bigger payouts and speculative fever. I can't see any causal link. The notion that a dividend payout (or buyback or whatever) represents money going "from" the real sector "to" the financial is true at a micro level, but I think this argument confuses the micro with the macro. At a macro level, lower investment/GDP means higher consumption/GDP (or govt, or exports), not larger financial volumes. Larger financial volumes can be caused by asset inflation brought on by feverish expectations. Or maybe by institutional changes that free the financial sector to do more engineering. But not by a drop in real investment.
The higher consumption/GDP has had to be financed, since wages haven't done the trick. A lot of that came from the upper orders (that which didn't come from China). But I'm not sure how the macro/micro can be easily separated. Since 1982, nonfinancial corps have transferred (through dividends and negative net equity offerings, which means buybacks & takeovers) almost $8 trillion to their shareholders, or 44% of their available internal funds. (Over the same period, internal funds have covered 90% of capital expenditures.) Where do you think that $8 trillion went? My guess is that a lot of it went into asset purchases and luxury consumption. Clearly a decline of just 1-2% of GDP in real investment is much smaller than this flow, so the lack of outlet explanation will only take you so far. But $8 trillion is a lot of money.
Over the same 1982-2010 period, credit market debt rose by $46 trillion, or over 800%. The value of stocks rose by $19 billion, or 1,243%. The transfer from corporations can't explain all this - there's also the accumulation of assets among the top 1% of households - but it has to have something to do with it.
Doug